Revolving Loan Fund (RLF)

A revolving loan fund (RLF) is a pot of money set aside for lending that refills itself. The fund makes loans, borrowers repay them, and the repayments are lent out again. Over time, the same dollars can finance several rounds of borrowers.

Here is a simple example. A county receives a $1 million grant and adds $500,000 of its own to start an RLF. It lends most of that money in its first three years. As borrowers repay, a steady stream of principal returns to the fund, and staff use it to make new loans. Interest and fees, after allowed costs, also go back into the pool.

RLFs are common in economic development and community lending. Major sources of RLF capital include:

• The US Economic Development Administration (EDA), which gives grants to capitalize RLFs that offer gap financing to businesses that cannot get bank credit. EDA rules (13 CFR Part 307) usually expect the grant to be lent within about three years, and recipients file a periodic RLF report on Form ED-209.
• The SBA Microloan Program, where nonprofit intermediaries borrow from SBA and relend to small businesses.
• USDA rural programs, such as the Intermediary Relending Program.
• States, cities and foundations.

Why it matters for lenders

An RLF comes with strings. The original funder usually keeps an interest in the money, sets rules on who can borrow and for what, and expects regular reports. If an EDA RLF holds too much idle cash for too long, EDA can treat that as noncompliance. Some programs also require reserves, such as a loan loss reserve fund.

A Community Development Financial Institution (CDFI) may run several RLFs at once, each with its own rules. Mixing them up can mean a loan funded from the wrong pool, a report that does not tie out, or a repayment credited to the wrong source.

How it works in practice

A regional development nonprofit manages an EDA RLF, a USDA relending fund and a city small business fund. When a loan is approved, the loan officer checks which pool fits the borrower, location and use of funds. At booking, finance tags the loan to its source. Each payment then posts to the right fund, so the cash available in each pool is always visible.

Before each EDA reporting date, the team pulls loans, balances, defaults and cash on hand for that fund alone. Organizations that track several RLFs in one spreadsheet often spend days separating payments by source. Sometimes they find a loan was funded from a pool that did not allow its purpose, which then has to be explained to the funder.